Trade idea
N/A premium selling
In high volatility environments, selling out-of-the-money puts is a viable strategy to capitalize on elevated premium prices. The speaker emphasizes that this approach is straightforward and leverages the mechanics of premium selling, which has been refined over years. The trade is managed at 50% or 21dt, and the strategy is most effective when the market is getting 'a little cheaper' (i.e., volatility is moderate but not extreme). This is a contrarian approach, suitable for markets with high volatility, where put prices are high and basis is low.
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Strategypremium selling
Assetoptions
ExpirationN/A
Time horizonshort-term
Entry / triggerhigh volatility (VIX > 20)
Target / exitmanaged at 50% or 21dt
Invalidation / stopmarket conditions shift to low volatility or significant price movement
SpeakerTom
Risks- Market conditions shift to low volatility
- Significant price movement
- Liquidity issues in options markets
Trade idea
ORCL buying on a pullback
The speaker believes that Oracle (ORCL) has reached a point where it may capitulate, and thus it is a good buy. The speaker's reasoning is based on the belief that the stock has been undervalued and that it may be a good opportunity to buy on a pullback.
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Strategybuying on a pullback
Assetstock
Time horizonNot explicitly stated, but the speaker suggests the trade may be short-term.
Entry / triggerThe speaker bought Oracle (ORCL) this morning due to its perceived undervaluation.
Target / exitNot explicitly stated, but the speaker believes the stock has reached a point where it may capitulate.
Invalidation / stopThe speaker does not specify a stop-loss or invalidation level.
SpeakerThe speaker
Risks- The stock may not perform as expected.
- The market may continue to decline, leading to further losses.
Trade idea
crypto buying on dips
The speaker believes the current decline in crypto prices is not a crash but a temporary setback, akin to a 'stinger' rather than a 'fender bender.' They propose buying on dips, specifically below $40s and $50s, during potential flash crashes or market downturns. The rationale is that the market is orderly and not indicative of a broader failure, suggesting a long-term bullish outlook. The target prices are based on the speaker's personal expectations for Bitcoin, Ethereum, and Salana.
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Strategybuying on dips
Assetcrypto
Time horizonshort-term to medium-term
Entry / triggerbuying below $40s and $50s during potential flash crash or market downturn
Target / exitpotential price increase to $42 for Bitcoin, $1,100 for ETH, and $45 for Salana
Invalidation / stopif the price continues to decline and does not show signs of stabilization or recovery
SpeakerTom
Risks- Market volatility could lead to further declines
- Potential for continued price drops if the market remains bearish
- Liquidity issues during flash crashes
Trade idea
GME volatility shorting
The trader made money back by shorting volatility during the GME meme stock explosion in 2021. The strategy was based on the expectation of a reversion to the mean in both volatility and price. The trader noted that the market's reversion to the mean in volatility and price was a key factor in the success of the trade. The trader also emphasized the importance of gravity in the market, suggesting that market corrections are a natural part of the trading environment.
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Strategyvolatility shorting
Assetequity
Time horizonShort-term
Entry / triggerVolatility reversion to the mean
Target / exitVolatility reversion to the mean
Invalidation / stopVolatility not reverting to the mean
SpeakerTom
Risks- Volatility not reverting to the mean
- Market not correcting as expected
Trade idea
SLV volatility premium
The speaker is short volatility in the silver ETF (SLV) due to the recent sharp move in the price of silver. They are short both puts and calls, expecting the market to rally back $3, which would bring them back to a flat position. The strategy relies on the market moving in a specific direction, and the risk is that the market could move against the short position, leading to losses. The speaker acknowledges the illiquidity of the SI options and prefers SLV for better liquidity and execution.
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Strategyvolatility premium
Assetcommodity
ExpirationMarch
Time horizonshort-term
Entry / triggermarket rally back $3
Target / exitflat position
Invalidation / stopmarket moves against the short position
Speakerspeaker
Risks- market moves against the short position
- volatility increases
- liquidity issues in the options market
Trade idea
Micro Strategies selling out-of-the-money puts
The speaker suggests selling out-of-the-money puts on Micro Strategies due to the high volatility of the stock, which is tied to Bitcoin. The put strike price is set at 80, with a premium of 505-520. The speaker estimates an 85% probability of profit due to the low delta (15 delta) of the put, indicating a high likelihood of the stock price remaining above the strike price. The trade is considered a low-risk, high-reward opportunity with a favorable risk-reward ratio.
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Strategyselling out-of-the-money puts
Assetstock
Expiration43 days
Time horizonShort-term (43 days)
Entry / triggerMarket conditions as of the time of the transcript
Target / exitCollect premium from the put sale
Invalidation / stopIf the stock price rises significantly above the put strike price
SpeakerPhoenix in the Dog Pound
Risks- Significant downside if the stock price drops below the put strike price
- Market volatility could affect the effectiveness of the trade
Insight
Volatility and Premium Selling Strategy
In high volatility environments, selling premium (such as out-of-the-money puts) becomes an attractive strategy. The speaker notes that when the VIX is over 20, it's a good time to sell premium as put prices are high and basis is low. This allows for a 'nibble' on the long side while managing risk with a 50% or 21dt (21 delta) approach. The strategy is straightforward and leverages the mechanics of premium selling, which the speaker has been working on for years.
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Applicable when- high volatility
- rising VIX
- out-of-the-money options
Limitations- Requires market conditions to remain volatile
- Not suitable for all market regimes
- Requires risk management at 50% or 21dt
Insight
Market Distribution and Outliers
The speaker discusses the distribution of trading outcomes, noting that a significant percentage of traders (around 15-17%) experience severe losses, while a similar percentage of traders achieve extraordinary success. This suggests that the market creates both significant outliers and casualties, with most traders falling in the middle of the distribution curve. The speaker emphasizes that providing opportunities for extraordinary upside is worth the risk, even with the downside.
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Applicable when- trading outcomes distribution
- market participation
Limitations- The exact percentage of traders in each category is not confirmed
- The speaker's perspective may not represent all market participants
Insight
Market Capitulation and Volatility
The speaker discusses the concept of market capitulation, emphasizing that the current market conditions are not yet at a level of capitulation. The VIX, a measure of market volatility, is noted to be significantly higher than usual, but the speaker argues that this is not indicative of a market bottom. The speaker also mentions that certain underlyings have had larger moves and may be closer to capitulation. This insight highlights the importance of monitoring volatility and market extremes to identify potential capitulation points.
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Applicable when- volatility expansion
- market extremes
Limitations- The speaker does not provide a clear definition of what constitutes market capitulation.
- The speaker's assessment is based on subjective judgment rather than objective criteria.
Insight
Leveraged ETFs as Short-Term Trading Vehicles
Leveraged ETFs are not capital efficient and should be used as short-term trading vehicles, ideally held for no more than 24 to 48 hours. They are a substitute for futures products and work well for intraday trading. However, holding them longer than this period exposes traders to significant disadvantages due to compounding and decay effects. Futures are recommended for traders with access to them due to their higher capital efficiency.
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Applicable when- Short-term trading
- Intraday trading
- Leverage usage
Limitations- Not suitable for long-term holding
- Higher risk of decay over time
- Not recommended for traders with access to futures
Insight
Disagreements and Compromise in Decision-Making
The discussion highlights the importance of compromise in decision-making, even when there are disagreements. The speakers acknowledge that while they have had minor disagreements over the years, they generally find a way to agree. The example of the soda machine illustrates how differing preferences can lead to temporary disagreements, but ultimately, a compromise is reached. The key takeaway is that while disagreements can occur, the ability to find common ground is crucial for maintaining harmony and making effective decisions.
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Applicable when- team dynamics
- decision-making processes
Limitations- The discussion is anecdotal and does not provide empirical evidence for the effectiveness of compromise in all scenarios.
Insight
Long-term bullish sentiment on crypto
The speaker expresses a long-term bullish outlook on cryptocurrencies, believing they will significantly increase in value despite current downturns. This is framed as a 'stinger' rather than a 'crash,' indicating a temporary setback rather than a fundamental collapse. The rationale is that the current decline is orderly and not indicative of a broader market failure.
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Applicable when- long-term bullish outlook
- orderly market decline
Limitations- The speaker's view is subjective and based on personal experience and market observations rather than objective data or analysis.
Insight
Long-term passive investing vs active trading
The transcript highlights that over the last 5 years, active trading strategies have underperformed passive buy-and-hold strategies. The speaker argues that passive investors should aim for a long-term return of 6.7% by combining 60% S&P 500 and 40% risk-free cash. Active traders, however, should aim for a multiple of this return, as the learning and experience gained from active trading may be worth the risk. The speaker emphasizes that evaluating performance over a short period like 5 years is unfair due to market volatility and the lack of hindsight.
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Applicable when- long-term investment
- passive vs active trading strategies
Limitations- Performance over short periods may not reflect long-term trends
- Market conditions can significantly affect returns
Insight
AI's Role in Program Trading
AI does not change the pricing or trade algorithms of program trading but provides more context and perspective for monitoring and managing these programs. It enhances the monitoring process by offering more context around risk and management of program trading positions and algorithms. AI also allows retail investors to access areas along the program trading line that they are not currently doing due to more readily available information. However, it is not certain that retail trading bots will help individuals make money, but they will provide a more grounded approach to trading.
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Applicable when- program trading
- AI integration
- risk management
Limitations- Uncertainty about the effectiveness of retail trading bots
- AI's role is more about context than algorithmic change
Insight
Managing Positions in Weak Markets
In weak markets, the speaker advocates for a strategy of 'nibbling' into down moves rather than buying all in. This approach involves buying smaller quantities at different price levels to mitigate risk and manage exposure effectively. The rationale is that in a weak market, buying all in could lead to significant losses if the market continues to decline. This method allows for more flexibility and reduces the impact of any single trade.
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Limitations- Requires careful monitoring and adjustment of positions based on market movements and volatility.
Insight
Starting with small account sizes
The speaker emphasizes that the size of an investment account does not determine the potential for success in trading. Whether one has $2,000, $5,000, $10,000, or $50,000, the key is to start trading with any amount of money. The speaker encourages individuals with small accounts to begin investing, suggesting that even a small amount can be used to buy stocks or other assets, such as fractional shares.
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Applicable when- small account sizes
- starting with limited capital
Limitations- The speaker does not provide specific strategies for small accounts, only general encouragement to start trading.
Insight
Scaling in Trading
Scaling in trading should be done uniformly across all trades, not selectively. When scaling, traders should widen their strikes before adding more contracts and use a bit more buying power rather than increasing size. This approach helps maintain consistency and avoids the pitfalls of picking and choosing which trades to scale, which can lead to significant losses.
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Applicable when- trading strategies
- risk management
Limitations- Requires consistent application across all trades
- May not be suitable for all market conditions
Insight
High Volatility and Skew in Crypto Assets
Crypto assets exhibit high volatility and upside skew, meaning the risk is predominantly to the upside rather than the downside. This skew implies that downside tail risk is not well priced, creating potential opportunities for selling downside puts. The speaker suggests that selling downside puts in crypto ETFs could be a profitable trade due to the current market conditions and the high premium associated with such instruments.
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Applicable when- high volatility
- upside skew
- downside tail risk underpricing
Limitations- Uncertainty about the accuracy of upside skew pricing
- Potential for significant downside if market conditions change rapidly
Insight
Market Commentary on Precious Metals and ETFs
Physical ETFs that hold exact amounts of gold or silver are considered to have no risk to the market structure, as they are tangible and not subject to the same volatility as other assets. However, the speaker notes that the volatility of silver has been extreme, with levels of volatility not seen before. This highlights the importance of understanding the specific characteristics of different assets and their associated risks.
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Applicable when- precious metals
- ETFs
- volatility
Limitations- The speaker's comments are speculative and not based on concrete data or analysis.
- The market conditions may change rapidly, affecting the validity of the insights.
Insight
Market Commentary on Bonds and Retail Performance
The speaker notes that bonds have shown a positive move, with a 26 to 115 point increase, indicating a flight to quality. This suggests that investors are seeking safer assets amid market uncertainty. The rest of the market, however, shows little green, indicating a lack of broad-based positive momentum. The speaker remains relatively flat on the market, suggesting a cautious approach.
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Applicable when- market uncertainty
- flight to quality
Limitations- Limited data on broader market trends
- Subjective interpretation of market sentiment
Insight
Market Commentary on Trading Strategies
The transcript includes a discussion about trading strategies, particularly focusing on betting on sports events and the use of odds. The speaker mentions lines and odds, indicating an understanding of betting markets and the importance of assessing probabilities and payouts. This suggests that successful trading in such markets requires a clear understanding of the odds and the ability to assess the likelihood of outcomes.
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Applicable when- sports betting
- odds analysis
Limitations- No specific market or instrument is discussed
- No actionable strategy is provided beyond general discussion
Q&A
What for all the shows that you've done over the years, how many people on average do you think were in attendance for your shows?
The speaker estimates that on average, about 500 people attended each show over the years. This results in an estimated 250,000 people over 500 shows, assuming each show had 500 attendees. These are real traders actively participating in the shows.
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Actionable takeawayThe speaker's audience consists of real traders actively participating in the shows, with an estimated 500 attendees per show.
Q&A
Is this a prime 'do the opposite' time?
The speaker states that 'prime do the opposite' occurs during ultimate capitulation, such as when volatility expands into the 30s, 35-40 range. The speaker indicates that the current situation is not yet prime for this strategy.
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Actionable takeawayThe 'do the opposite' strategy is most effective during extreme market capitulation, not currently.
Q&A
What do you think about leveraged ETFs?
The speaker states that leveraged ETFs are not recommended, as they are not working for the investor. The speaker suggests that leveraged ETFs are a friend only when they are working, but otherwise, they are not a good investment.
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Actionable takeawayLeveraged ETFs are not recommended for investment due to their high risk and potential for significant losses.
Q&A
What do you think about leveraged ETFs?
Leveraged ETFs are not capital efficient and should be used as short-term trading vehicles, ideally held for no more than 24 to 48 hours. They are a substitute for futures products and work well for intraday trading. However, holding them longer than this period exposes traders to significant disadvantages due to compounding and decay effects. Futures are recommended for traders with access to them due to their higher capital efficiency.
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Actionable takeawayAvoid holding leveraged ETFs for more than 24-48 hours due to their inefficiency and decay. Use futures instead if available.
Q&A
Is this a crypto crash?
The speaker explains that while there has been a significant drop in crypto prices, it is not considered a crash. Instead, it is viewed as a reasonable pullback. The speaker emphasizes that there is no panic and that the market is experiencing orderly selling. The speaker also notes that the price has been cut in half from its previous high, but this is seen as a massive move rather than a crash. The speaker does not recommend buying at the current price.
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Actionable takeawayThe discussion suggests that the current crypto market movement is a pullback rather than a crash, and the speaker does not recommend buying at the current price.
Q&A
Why do you think this is not a crash?
The speaker argues that the current decline in crypto prices is orderly and not indicative of a crash. They compare it to a 'stinger' rather than a 'fender bender,' suggesting it is a temporary setback rather than a fundamental market failure.
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Actionable takeawayThe speaker's view is that the current decline is not a crash but a temporary setback, indicating a potential for recovery.
Q&A
What is the difference between active and passive investing in terms of long-term returns?
The transcript suggests that passive investing, such as buying and holding the S&P 500, has historically provided a long-term return of 6.7% when combined with risk-free cash. Active trading strategies, while potentially offering higher returns, have underperformed over the last 5 years. The speaker emphasizes that active trading should aim for a multiple of this return, but the learning and experience gained from active trading may be worth the risk.
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Actionable takeawayPassive investing may offer more consistent long-term returns, while active trading may offer higher returns but with greater risk and uncertainty.
Q&A
How did you make your money back after your large loss in GME?
The trader made money back by shorting volatility during the GME meme stock explosion in 2021. The strategy was based on the expectation of a reversion to the mean in both volatility and price. The trader noted that the market's reversion to the mean in volatility and price was a key factor in the success of the trade.
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Actionable takeawayShorting volatility can be a profitable strategy during periods of extreme market volatility, especially when expecting a reversion to the mean.
Q&A
How do you manage positions in weak markets?
The speaker suggests buying smaller quantities at different price levels to mitigate risk and manage exposure effectively. This approach allows for more flexibility and reduces the impact of any single trade.
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Actionable takeawayIn weak markets, consider a 'nibbling' approach by buying smaller quantities at different price levels to manage risk and exposure.
Q&A
What do you think about small accounts looking for ways to build their account?
The speaker believes that the size of an account does not matter and encourages people with small accounts to start trading with any amount of money. They suggest that even a small amount can be used to buy stocks or other assets, such as fractional shares.
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Actionable takeawayStart trading with any amount of money, even small amounts, and use it to buy stocks or other assets.
Q&A
What is the issue with scaling selectively in trading?
Scaling selectively can lead to significant losses because it disrupts the consistency of the trading strategy. If some trades are scaled and others are not, the overall performance can be negatively impacted.
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Actionable takeawayAvoid selective scaling; apply scaling uniformly across all trades.
Q&A
Does short premium trading have an edge in crypto or is the frequent tail risk being correctly priced?
The speaker acknowledges that short premium trading in crypto may have an edge due to the high volatility and upside skew of crypto assets. However, the downside tail risk is considered to be priced correctly, while the upside risk remains uncertain. The speaker suggests that selling downside puts could be a profitable trade due to the current market conditions and the high premium associated with such instruments.
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Actionable takeawaySelling downside puts in crypto ETFs could be a profitable trade due to the current market conditions and the high premium associated with such instruments.
Q&A
Are there any other stocks besides Hoot Coin and MSTR that deal with cryptos?
There are several other stocks that deal with cryptos, including miners like Riot and Mara, as well as companies like Clean Spark Mining (CLSK). However, the speaker notes that most crypto companies are not publicly traded, and the ones that are public are not as prominent as Coinbase, MSTR, or Robin Hood.
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Actionable takeawayInvestors should consider a variety of stocks that deal with cryptos, including miners and publicly traded companies, but should be cautious about the volatility and risks associated with these assets.
Q&A
Did you get a bet in on the Super Bowl?
The speaker mentions having a small bet with another trader, specifically on the Seahawks. The speaker is uncertain about the line and is open to supporting the bet if needed.
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Actionable takeawayThe speaker is open to supporting a bet on the Seahawks, indicating a willingness to engage in sports betting with a trading partner.
Q&A
What is the line for the Seahawks?
The line for the Seahawks is mentioned as 4 and a half, with the speaker indicating they are unsure if it's correct.
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Actionable takeawayThe line for the Seahawks is 4 and a half, but the speaker is uncertain about its accuracy.